Four Seasons Hotel (NYSE:FS)
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TORONTO, May 5 /PRNewswire-FirstCall/ -- Four Seasons Hotels Inc. (TSX Symbol "FSH"; NYSE Symbol "FS") today reported its results for the first quarter ended March 31, 2006.
All amounts disclosed in this news release are in US dollars unless otherwise noted. Endnotes can be found at the end of this news release.
Highlights of the First Quarter of 2006
For the three months ended March 31, 2006, as compared to the same period in 2005:
Hotel and Resort Operating Results:
- RevPAR(1) at our worldwide Core Hotels(2) increased 11.7%. RevPAR
at our US Core Hotels increased 12.6%.
- Gross operating margins(3) at our worldwide Core Hotels increased
250 basis points to 32.4%. At our US Core Hotels, gross operating
margins increased 210 basis points to 30.2%.
- Revenues under management increased 15.1% to $692.3 million. We
had approximately 17,500 rooms under management in the first
quarter of 2006, as compared to approximately 16,500 rooms in the
first quarter of 2005.
"We are very pleased with our operating results in the first quarter, which reflect continued strong travel demand, particularly for luxury travel experiences. We are also pleased with the strong profitability improvements at the hotels and resorts we manage," commented Isadore Sharp, Chairman and Chief Executive Officer. "Recently opened properties in Hong Kong, Geneva, Palo Alto and a new tented camp in the Golden Triangle, Thailand are garnering immediate critical acclaim and a strong positive customer response, which further enhances the Four Seasons brand."
Company Operating Results:
- Overall, we recorded net earnings of $13.4 million ($0.36 basic
and diluted earnings per share), compared to net earnings of
$5.2 million ($0.14 basic and diluted earnings per share).
- As a result of improved results at properties under our management
and an increase in the number of rooms under management, hotel
management fees increased 23.1%.
- Base fees increased 12.1%, generally in line with RevPAR
improvements for the quarter.
- As a result of improved profitability and the addition of new
properties under our management, incentive fees increased 50.3%.
Incentive fees from resorts under our management had the most
significant year over year increase.
- Other fees improved 44.7%, primarily as a result of an increase in
branded residential royalty fees.
- Operating earnings before other items(4) increased $8.4 million to
$20.5 million.
"We are pleased with the growth in our management fees. Our financial results are tracking with the operational improvements at the properties we manage," said John Davison, Chief Financial Officer. "Our base fees increased generally in line with the overall RevPAR performance of properties under our management, which was ahead of our expectations. We are also pleased with the progress we have made on certain corporate initiatives related to cost control and foreign exchange management."
Expanding and Refining the Portfolio:
- Negotiations continue with the owner of the Ritz-Carlton Chicago
concerning the sale of that property and the potential cessation
of our management on acceptable terms.
- Since the beginning of the year, we have announced new projects in
the following five locations: Barbados, Macau, Seychelles,
Shanghai and Taipei.
"We are delighted with the strength of our development pipeline, which continues to grow in depth and breadth," said Kathleen Taylor, President Worldwide Business Operations. "Each of these new locations will be exciting additions to our portfolio and will help support the future growth of the Company."
-------------------------------
(1) 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.
(2) 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.
(3) Gross operating margin represents gross operating profit as a
percentage of gross operating revenue.
(4) Operating earnings before other items is equal to net earnings plus
(i) income tax expense plus (ii) interest expense less (iii) interest
income plus (iv) other expenses, net plus (v) depreciation and
amortization. Operating earnings before other items 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 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.
FIRST QUARTER OF 2006
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2006 is provided as of May 5, 2006. It should be read in conjunction with the interim unaudited consolidated financial statements for that period, the audited consolidated financial statements for the year ended December 31, 2005 and the MD&A for that year, including the discussion of risks and uncertainties associated with forward-looking statements. Except as disclosed in this MD&A, as of May 5, 2006, there has been no material change in the information disclosed in the MD&A for the year ended December 31, 2005. A summary of total revenues, net income or loss in total and on a per share basis for the past eight quarters can be found under "Eight Quarter Summary".
All amounts disclosed in this MD&A are in US dollars unless otherwise noted. Endnotes can be found at the end of this document.
Operational and Financial Review and Analysis
Hotel and Resort Operating Results
Consistent with industry practices, we track RevPAR(1) on a US dollar basis, and all numbers noted below reflect that practice unless otherwise noted. For the first quarter of 2006, RevPAR of our worldwide Core Hotels(2) increased 11.7%, as compared to the first quarter of 2005, reflecting improvements in each of the regions in which we manage hotels and resorts. This increase in RevPAR was attributable to a 7.2% improvement in achieved room rates and a 270 basis point increase in overall occupancy.
Gross operating revenues of our worldwide Core Hotels increased 9.4% in the first quarter of 2006, as compared to the first quarter of 2005. The improvements in revenue, combined with continued cost management efforts at the properties under our management, resulted in a 18.6% and 250 basis point increase in gross operating profits(3) and gross operating margins(4), respectively.
With respect to our Core Hotels, the United States represents the most significant geographic area to us, contributing 50.5% of revenues under management for the first quarter of 2006, followed by Other Americas/Caribbean (17.9%), Europe (13.2%), Asia/Pacific (12.3%) and the Middle East (6.1%). The following tables highlight the results of operations for our Core Hotels in each of these regions.
United States Region
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Results for First Quarter 2006, as
compared to First Quarter 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point
$ Increase Increase Increase Margin Improvement
-------------------------------------------------------------------------
First
Quarter 301 12.6% 11.6% 20.2% 30.2% 210
-------------------------------------------------------------------------
The increase in RevPAR was attributable to an 8.3% increase
in achieved room rates in the region and a 290 basis point
improvement in occupancy. Virtually all of the hotels and
resorts in this region experienced RevPAR improvements. In
particular, properties under management in Atlanta, Houston,
New York, San Francisco and Maui had very strong RevPAR
improvements relative to the average for the U.S. region. As
a result of improvements in RevPAR, gross operating profits
and gross operating margins increased 20.2% and 210 basis
points, respectively.
-------------------------------------------------------------------------
Other Americas/Caribbean Region
-------------------------------------------------------------------------
Results for First Quarter 2006, as
compared to First Quarter 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point
$ Increase Increase Increase Margin Improvement
-------------------------------------------------------------------------
First
Quarter 303 13.1% 14.0% 19.8% 36.9% 170
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The majority of the properties under management in this
region experienced RevPAR improvements as the result of an
increase in achieved room rates and occupancy. Properties
under management in Buenos Aires, Costa Rica, and Whistler
had particularly strong RevPAR improvements relative to the
average for the region. RevPAR at properties under management
in Exuma and Nevis declined slightly mostly due to the
unusually warm weather on the US Eastern Seaboard, which had
a negative impact on travel to these resorts. On a local
currency basis, RevPAR improved 11.8%. As a result of
improvements in RevPAR, gross operating profits and gross
operating margins increased 19.8% and 170 basis points,
respectively.
-------------------------------------------------------------------------
Europe Region
-------------------------------------------------------------------------
Results for First Quarter 2006, as
compared to First Quarter 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point
$ Increase Increase Increase Margin Improvement
-------------------------------------------------------------------------
First
Quarter 307 15.6% 2.1% 20.3% 25.0% 370
-------------------------------------------------------------------------
RevPAR changes in the European Core Hotels were mixed. RevPAR
increases at the properties under management in Dublin,
Lisbon, London, Milan and Paris was the result of increases
in achieved room rates. However certain other properties
under management in the European region (in particular in
Prague and Terre Blanche) experienced RevPAR declines due in
part to a decline in achieved room rates. On a local currency
basis, RevPAR increased 25.5%, reflecting an 11.0% increase
in achieved room rates in local currency, versus 2.2% in US
dollars. Gross operating profits increased 20.3% (31.1% on a
local currency basis), and gross operating margins improved
370 basis points due to improvements in overall occupancy and
achieved room rates.
-------------------------------------------------------------------------
Middle East Region
-------------------------------------------------------------------------
Results for First Quarter 2006, as
compared to First Quarter 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point
$ Increase Increase Increase Margin Improvement
-------------------------------------------------------------------------
First
Quarter 182 14.4% 14.6% 20.5% 52.1% 260
-------------------------------------------------------------------------
With the exception of Sharm el Sheikh, where business was
adversely affected by the lingering effect of the July 2005
bombings in that area, all of the properties under management
in the Middle East region had RevPAR improvements. The
increase in RevPAR was driven almost entirely by a 14.9%
increase in achieved room rates. Four Seasons Hotel Cairo
Nile Plaza and Four Seasons Hotel Riyadh had particularly
strong RevPAR improvements, as compared to the average for
the region. On a local currency basis, RevPAR improved 12.4%.
Gross operating profits increased 20.5% (18.4% on a local
currency basis). Gross operating margins increased 260 basis
points as a result of the improvement in achieved room rate.
-------------------------------------------------------------------------
Asia/Pacific Region
-------------------------------------------------------------------------
Results for First Quarter 2006, as
compared to First Quarter 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point
$ Increase Increase Increase Margin Improvement
-------------------------------------------------------------------------
First
Quarter 132 3.0% 0.7% 8.6% 32.6% 240
-------------------------------------------------------------------------
RevPAR increased 3.0% (6.1% on a local currency basis).
RevPAR changes in the Asia/Pacific region were mixed.
Properties under management in Bangkok and Singapore
experienced strong RevPAR improvements. However, other
properties in the region experienced flat RevPAR or a decline
in RevPAR. In particular, the resorts in Bali experienced
lower demand during the first quarter of 2006. Gross
operating profits improved 8.6% (11.5% on a local currency
basis) and gross operating margins increased 240 basis
points, mainly as the result of improved operating results at
properties under management in Bangkok and Singapore.
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Company Operating Results
Our strategy has been to focus on hotel management rather than hotel ownership. Over the past few years, we have reduced our ownership interests such that Four Seasons Hotel Vancouver is our only remaining hotel whose results we currently consolidate. As a result, commencing January 1, 2006, corporate expenses have been included in general and administrative expensesin the consolidated statements of operations for the three months ended March 31, 2006. Corporate expenses for the three months ended March 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. Attached are supplementary schedules including prior quarters in 2004 and 2005 reflecting this reclassification.
Revenues
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(in millions Three months ended Dollar Change Percentage
of dollars) March 31, Change
-------------------------------------------------------------------------
2006 2005 2006 over 2005 2006 over 2005
-------------------------------------------------------------------------
Hotel management fees
Base $19.7 $17.6 $2.1 12.1%
Incentive 10.7 7.1 3.6 50.3%
-------------------------------------------------------------------------
Subtotal 30.4 24.7 5.7 23.1%
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Other fees 5.3 3.7 1.6 44.7%
-------------------------------------------------------------------------
Subtotal 35.7 28.4 7.3 25.9%
-------------------------------------------------------------------------
Hotel ownership revenues 5.5 20.5(x) (15.0) (73.3%)
-------------------------------------------------------------------------
Reimbursed costs(5) 16.4 14.2 2.2 15.6%
-------------------------------------------------------------------------
Total revenues $57.6 $63.1(x) ($5.5) (8.7%)
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(x) Included in 2005 were the 100% consolidated results of The Pierre.
Hotel Management Fees
Base Fees
Base fees increased $2.1 million (from $17.6 million to $19.7 million) for the quarter ended March 31, 2006, as compared to the quarter ended March 31, 2005. Of the $2.1 million increase in base fees, base fees from Core Hotels contributed $1.4 million or 66.2% of the increase. The increase in base fees from Core Hotels in the three months ended March 31, 2006 represented a 8.7% increase over the base fees generated from Core Hotels in the first quarter of 2005. Properties that opened in 2005 and 2006 contributed base fees of $1.4 million in the first quarter of 2006, as compared to nil in the same period in 2005. The increase in base fees in the quarter was moderated slightly by a $0.4 million reduction in base fees from properties no longer under management.
Incentive Fees
For the quarter ended March 31, 2006, incentive fees increased $3.6 million, as compared to the same period in 2005. The incentive fees earned from properties that opened in 2005 and 2006 represented $1.3 million of the increase. Incentive fees were earned from 38 of the 70 hotels and resorts under management for the first quarter of 2006, as compared to 36 of the 65 hotels and resorts under management in the same period in 2005. The strong increase in incentive fees was primarily due to strong operating results at many of the resorts under management.
Typically, the incentive fees we receive from the properties under our management are reconciled on an annual basis to the actual full year operating results at a particular property. On a quarterly basis, we recognize incentive fees that would be calculated under the incentive fee formula as if the particular management contract was terminated at the relevant reporting date. If a property's profitability decreases in a subsequent quarter (due mainly to seasonal differences), the incentive fee accrued in a previous quarter may be reduced or eliminated. Based on our current outlook and historical patterns, we expect that a portion of the incentive fees accrued during the first quarter of 2006, primarily related to resorts under management, may be reversed in subsequent quarters.
Other Fees
Other fees include royalty and management fees from our residential business, fees we earn during the development of our hotels and resorts, capital procurement fees and other miscellaneous fees. For the three months ended March 31, 2006, other fees increased 44.7% or $1.6 million, to $5.3 million as compared to the same period in 2005. The increase in other fees for the first quarter of 2006, as compared to the same period in 2005, was attributable to royalty fees related to the sale of branded residences in Miami and San Francisco. Royalty fees earned on the sale of branded residences will vary period to period based on the volume of sales closing in those periods, and these fluctuations may be significant.
Hotel Ownership Revenues
We have a 100% leasehold interest in the Four Seasons Hotel Vancouver and, as a result, we consolidate the results of that hotel. During the first half of 2005, we also had a 100% leasehold interest in The Pierre and consolidated the results of that property. We assigned the lease of The Pierre to a third party at the end of June 2005 and, as a result, we ceased to consolidate that property at that time. Our investment strategy is not to hold any majority interests in properties. However, Four Seasons Hotel Vancouver is a long-term leasehold interest that was established at an earlier stage in our development. We continue to review our options for the Four Seasons Hotel Vancouver to determine what, if any, alternatives may be available to modify or restructure our operation of, or investment in, this hotel. There can be no assurance that acceptable alternative arrangements will be found with respect to this hotel or as to the terms of any such alternative arrangements.
In the first quarter of 2006, the decline in hotel ownership revenue was primarily related to our owning and consolidating 100% of The Pierre during the first quarter of 2005 and our not owning and not consolidating it during the first quarter of 2006. Hotel ownership revenue for the first quarter of 2006 relates to the Four Seasons Hotel Vancouver only. Revenue at that property increased modestly relative to the first quarter of 2005, primarily as the result of a 720 basis point improvement in occupancy.
Reimbursed Costs
Reimbursed costs, which primarily represents sales, marketing, advertising and central reservation expenses, are generally incurred on a cost-recovery basis to us and are a function of the revenues under our management. For the three months ended March 31, 2006, reimbursed costs increased $2.2 million or 15.6%, as compared to the corresponding period in 2005. The increase was due in part to a larger portfolio of properties, as compared to the same period in 2005.
Expenses
General and Administrative Expenses
As discussed above, general and administrative expenses include amounts that were previously classified as corporate expenses. General and administrative expenses increased 11.9% to $14.2 million from $12.7 million in the first quarter of 2006, as compared to the same period in 2005. The majority of our general and administrative expenses are in Canadian dollars and, accordingly, a portion of the increase for the first quarter of 2006, as compared to the same period in 2005, was attributable to the US dollar having declined relative to the Canadian dollar (average Canadian/US foreign exchange rate: first quarter 2006 - $1.15421; 2005 - $1.22652). For the first quarter of 2006, general and administrative expenses increased 5.4% on a Canadian dollar basis as compared to the same period in 2005.
Hotel Ownership Cost of Sales and Expenses
As discussed above, we consolidate 100% of the operations of Four Seasons Hotel Vancouver, and until June 30, 2005 we also consolidated the operations of The Pierre. Hotel ownership cost of sales and expenses declined 73.0% to $6.5 million in the first quarter of 2006, from $24.1 million during the first quarter of 2005 primarily as a result of the operations of The Pierre being consolidated during the first quarter of 2005 and not being consolidated during the first quarter of 2006. Costs of sales and expenses at Four Seasons Hotel Vancouver increased 7.4% in the first quarter of 2006, as compared to the same period in 2005, primarily as a result of higher labour costs related to the improvement in occupancy. Overall, our net loss from hotel ownership declined from $3.6 million in the first quarter of 2005 to $1.0 million in the first quarter of 2006.
Operating Earnings Before Other Items(6)
As a result of the items described above, operating earnings before other items were $20.5 million in the first quarter of 2006 as compared to $12.1 million in the same period in 2005. Excluding hotel ownership revenues, hotel ownership cost of sales and expenses and reimbursed costs, our profit margin on our management business was as follows:
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Three months ended
(in millions of dollars) March 31,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Hotel management fees $30.4 $24.7
-------------------------------------------------------------------------
Other fees 5.3 3.7
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Subtotal 35.7 28.4
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General and administrative expenses (including
corporate expenses as discussed above) (14.2) (12.7)
-------------------------------------------------------------------------
Total $21.5 $15.7
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Profit margin 60.1% 55.2%
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Other Expenses, Net
For the first quarter of 2006, other expenses, net was $0.8 million, as compared to $2.7 million for the same period in 2005.
-------------------------------------------------------------------------
Three months ended
(in millions of dollars) March 31,
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2006 2005
-------------------------------------------------------------------------
Foreign exchange loss $0.5 $0.4
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Loss on disposition of assets - 0.4
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Asset provision and write downs 0.3 1.9
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Other expenses, net $0.8 $2.7
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Foreign Exchange
Other expenses for the first quarter of 2006 included a foreign exchange loss of $0.5 million, as compared to a loss of $0.4 million for the same period in 2005.
The majority of our general and administrative expenses are incurred in Canadian dollars, while the majority of fee revenues and cash balances are in US dollars. We also incur Canadian dollar capital funding requirements, which are primarily attributable to our corporate office expansion. Accordingly, in December 2005 we began selling forward US dollars for conversion to Canadian dollars.
As at March 31, 2006, we had contracts in place to sell forward $24.6 million at a weighted average exchange rate of 1.156 at various maturities extending to June 2006. Subsequent to March 31, 2006, we have extended the program to sell forward an additional $28.8 million with maturities extending to October 2007, at a weighted average rate of 1.137. Although these forward contracts relate to our general and administrative expenses and capital funding requirements, for accounting purposes they are "marked-to-market", with the corresponding gains or losses included in "Other Expenses, Net". The mark-to-market loss on these contracts for the three months ended March 31, 2006 was $0.1 million.
While this program of selling forward US dollars allows us to predict the cost in US dollars of the majority of our Canadian dollar general and administrative expenses and capital requirements, it will not eliminate the impact of foreign currency fluctuations related to our management fees in currencies other than US dollars. It will also not eliminate foreign currency gains and losses related to un-hedged net monetary assets and liability positions. As such, our consolidated results will continue to include gains and losses related to foreign currency fluctuations. The impact of foreign currency gains and losses has been material in the past and could continue to be material in the future.
Interest Income and Interest Expense
The $0.6 million increase in interest income for the quarter ended March 31, 2006, as compared to the same period in 2005, was primarily attributable to higher deposit interest rates.
The $0.6 million increase in interest expense was primarily attributable to the interest expense accrued relating to the currency and interest rate swap agreement we entered into in the second quarter of 2005 related to the convertible senior notes. These arrangements are more fully described in the MD&A for the year ended December 31, 2005. The effective interest rate on the convertible senior notes in the first quarter of 2006 was approximately 5.5%, which represents $3.0 million of interest expense for that period.
Income Tax Expense
Our income tax expense during the first quarter of 2006 was $4.3 million (effective tax rate of 24.5%), as compared to income tax expense of $1.9 million (effective tax rate of 26.8%), for the same period in 2005.
Net Earnings and Earnings per Share
For the reasons outlined above, net earnings for the quarter ended March 31, 2006 were $13.4 million ($0.36 basic and diluted earnings per share), as compared to net earnings of $5.2 million ($0.14 basic and diluted earnings per share) for the quarter ended March 31, 2005.
Adjusted Net Earnings and Adjusted Earnings per Share
In the first quarter of 2005, we recorded $2.7 million of other expenses related to losses on the disposition of minority investments and a foreign exchange loss, as compared to $0.8 million in other expenses in the first quarter of 2006.
Adjusting for these items, adjusted net earnings are as follows:
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Three months ended
(in millions of dollars) March 31,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Net earnings $13.4 $5.2
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Other expense 0.8 2.7
-------------------------------------------------------------------------
Tax effect of adjustments (0.1) (0.5)
-------------------------------------------------------------------------
Adjusted net earnings $14.1 $7.4
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Adjusted basic earnings per share $0.38 $0.20
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Adjusted diluted earnings per share $0.38 $0.19
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Adjusted net earnings 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 and should not be considered as an alternative to net earnings, cash flow from operating activities or any other measure of performance prescribed by Canadian GAAP. Our adjusted net earnings may also not be comparable to adjusted net earnings used by other companies, which may be calculated differently. We consider adjusted net earnings to be a meaningful indicator of our operations, and we use it as a measure to assess our operating performance. Adjusted net earnings is also used by investors, analysts, and our lenders as a measure of our financial performance. As a result, we have chosen to provide this information.
Eight Quarter Summary
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(in millions of dollars except per share amounts)
First Quarter Fourth Quarter Third Quarter Second Quarter
-------------------------------------------------------------------------
2006 2005 2005 2004 2005 2004 2005 2004
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Total
revenues $57.6 $63.1 $58.5 $69.5 $52.2 $63.3 $74.5 $71.4
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Operating
earnings
before other
items $20.5 $12.1 $12.3 $14.7 $11.7 $14.9 $20.1 $20.5
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Net earnings
(loss) $13.4 $5.2 $(37.8) $12.8 $(11.4) $(8.5) $15.8 $12.8
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Basic
earnings
(loss) per
share(8) $0.36 $0.14 $(1.03) $0.35 $(0.31) $(0.24) $0.43 $0.36
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Diluted
earnings
(loss) per
share(7) $0.36 $0.14 $(1.03) $0.34 $(0.31) $(0.24) $0.42 $0.34
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Average
Canadian/US
foreign
exchange
rate used
for
specified
quarter 1.15421 1.22652 1.17478 1.22033 1.20687 1.30758 1.24401 1.35860
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Liquidity and Capital Resources
As at March 31, 2006, our cash and cash equivalents were $245.3 million, as compared to $242.2 million as at December 31, 2005. Our investments in cash and cash equivalents are highly liquid, with original maturities of less than 90 days. These investments include bank deposits, guaranteed investment certificates and money market funds held with major financial institutions.
We have a committed bank credit facility of $125.0 million, which expires September 2007. Borrowings under this credit facility bear interest at LIBOR plus a spread ranging between 0.875% and 2.25% in respect of LIBOR-based borrowings (prime rate plus a spread ranging between nil and 1.25% in respect of prime rate borrowings), depending upon certain criteria specified in the credit agreement. As at March 31, 2006, no amounts were borrowed under the credit facility. However, approximately $1.6 million of letters of credit were issued under the facility. No amounts have been drawn under these letters of credit. We believe that, absent of 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.
As discussed in the MD&A for the year ended December 31, 2005, we have contractual obligations, guarantees and other commitments, including certain lease commitments. There has been no material change to these commitments through the first quarter of 2006.
Cash Flows
Cash from Operations
The increase in cash from operations of $10.3 million in the first quarter of 2006, as compared to the same period in 2005, resulted primarily from higher earnings generated from our management business and lower losses incurred by hotel ownership, changes of $2.8 million in non-cash working capital, and a $1.3 million reduction in income taxes paid.
Investing Activities
Long-Term Receivables
In the first quarter of 2006, we advanced $2.3 million, in the aggregate, as long-term receivables to properties under our management. Also in the first quarter of 2006, we were repaid $7.9 million, in the aggregate, of our long- term receivables, including repayments related to properties under our management in Washington and Shanghai.
In the first quarter of 2005, we advanced $20.8 million, in the aggregate, as long-term receivables to properties under our management and were repaid $0.3 million of our long-term receivables.
Investments in Hotel Partnerships and Corporations
To fund capital requirements in properties in which we have an interest (primarily properties under construction or development), we invested $0.5 million in the first quarter of 2006. In the first quarter of 2006, we were also repaid $2.3 million relating to our equity interest in a property under our management.
During the first quarter of 2006, we contributed our equity interest in a property under our management in exchange for a management contract enhancement of approximately the same fair value. No gain or loss was recorded in connection with this transition.
In the first quarter of 2005, we invested $7.2 million in properties in which we have an interest and were repaid $5.3 million relating to one of our equity interests.
Investment in Management Contracts
In the first quarters of 2006 and 2005, we funded an aggregate of $4.0 million and $0.1 million, respectively, related to our investments in management contracts.
Fixed Assets
Our capital expenditures were $5.6 million for the quarter ended March 31, 2006, as compared to $3.6 million for the same period in 2005. In 2004, we commenced construction on our Toronto corporate office expansion, which is scheduled to be completed during 2006. In the first quarters of 2006 and 2005, capital expenditures related to this expansion were $5.4 million and $2.6 million, respectively.
Outstanding Share Data
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Designation Outstanding as at May 4, 2006
-------------------------------------------------------------------------
Variable Multiple Voting Shares(1) 3,725,698
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Limited Voting Shares 33,030,478
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Options to acquire Limited Voting Shares(2):
-------------------------------------------------------------------------
Outstanding 4,393,243
-------------------------------------------------------------------------
Exercisable 3,416,929
-------------------------------------------------------------------------
Convertible Senior Notes issued June 2004
and due 2024(3) $251.4 million(4)
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(1) Convertible into Limited Voting Shares at any time at the option of
the holder on a one-for-one basis.
(2) As disclosed in note 11(a) to our annual consolidated financial
statements for the year ended December 31, 2005, pursuant to an
agreement approved by the shareholders in 1989, Four Seasons has
agreed to make a payment to Mr. Isadore Sharp on an arm's length sale
of control of Four Seasons Hotels Inc. that is calculated by
reference to the consideration received per Limited Voting Share in
the transaction and the total number of Variable Multiple Voting
Shares and Limited Voting Shares outstanding at the time of sale.
(3) The terms of the convertible senior notes are more fully described in
our MD&A for the year ended December 31, 2005.
(4) This amount is equal to the issue price of the convertible senior
notes issued in June 2004 and due 2024 plus accrued interest
calculated at 1.875% per annum.
Looking Ahead
If the travel trends that we experienced in 2005 and the first quarter of 2006 continue, and based on current demand reflected in our reservation activity, we expect RevPAR for worldwide Core Hotels in the second quarter of 2006 and the full year 2006 to increase in the range of 9% to 11%, as compared to the corresponding periods in 2005. We expect that this improvement will result from occupancy and rate improvements in all geographic regions. If these anticipated trends continue and we meet our expectations for cost management, we expect gross operating margins of our worldwide Core Hotels to increase in the range of 200 to 225 basis points for the full year of 2006, as compared to the full year of 2005. Accordingly, based on the current hotel operating outlook, we expect hotel management fee revenue to grow for the full year 2006 to be approximately 15%.
Changes in Accounting Policies
During the three months ended March 31, 2006, we adopted The Canadian Institute of Chartered Accountants' ("CICA") new accounting standard on non- monetary transactions, as discussed in note 1 to the interim consolidated financial statements. This standard was to be implemented for non-monetary transactions initiated on or after January 1, 2006. The adoption of this standard did not have a material impact on our consolidated financial statements.
Additional Information
----------------------
Additional information about us (including our most recent annual information form, annual MD&A and our audited financial statements for the year ended December 31, 2005) is available on our website at http://www.fourseasons.com/investor, and on SEDAR at http://www.sedar.com/.
-------------------------------------
(1) 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.
(2) 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.
(3) Gross operating profit is defined as gross operating revenues less
operating expenses.
(4) Gross operating margin represents gross operating profit as a
percentage of gross operating revenue.
(5) Reimbursed costs include the reimbursement of all out-of-pocket
costs, including sales and marketing and advertising charges.
(6) Operating earnings before other items is equal to net earnings plus
(i) income tax expense plus (ii) interest expense less (iii) interest
income plus (iv) other expenses, net plus (v) depreciation and
amortization. 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
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.
(7) Quarterly and year-to-year computations of per share amounts are made
independently. The sum of per share amounts for the quarters may not
agree with per share amounts for the year.
(x) (x) (x)
All dollar amounts referred to in this news release are US dollars unless otherwise noted. The financial statements are prepared in accordance with Canadian generally accepted accounting principles.
(x) (x) (x)
This news release contains "forward-looking statements" within the meaning of applicable securities laws, including RevPAR, profit margin and earning 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. 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 management's discussion and analysis for the year ended December 31, 2005 and in this document. (See discussion under "Operating Risks" beginning on page 17 of our Annual Information Form and page 45 of our Management's Discussion and Analysis for the year ended December 31, 2005, which are available on our website at http://www.fourseasons.com/ and on SEDAR at http://www.sedar.com/.) 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. All forward looking statements in this news release 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, its financial or operating results or its securities or any of the properties that we manage or in which we may have an interest.
(x) (x) (x)
We will hold a conference call today at 11 a.m. (Eastern Daylight Time) to discuss the first quarter financial results. The details are:
To access the call dial: 1 (800) 428-5596 (U.S.A. and Canada)
1 (416) 620-2419 (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 21289532.
A live web cast of the call 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 personalised 24-hour service, Four Seasons embodies a true home away from home for those who know and appreciate the best. The deeply instilled Four Seasons culture is personified in its employees - people who share a single focus and are inspired to offer great service. Founded in 1960, Four Seasons has followed a targeted course of expansion, opening hotels in major city centers and desirable resort destinations around the world. Currently with 70 hotels in 31 countries, and more than 25 properties under development, Four Seasons will continue to lead luxury hospitality with innovative enhancements, making business travel easier and leisure travel more rewarding. For more information on Four Seasons, visit http://www.fourseasons.com/.
SCHEDULE A(1)
-------------
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of 2005
US dollars except ------------------------------------------------------
per share First Second Third Fourth
amounts) Quarter(2) Quarter(2) Quarter(2) Quarter(2) Total(2)
-------------------------------------------------------------------------
Revenues:
Hotel management
fees $ 24,689 $ 28,382 $ 22,531 $ 25,239 $ 100,841
Other fees 3,680 2,840 3,471 4,057 14,048
Hotel ownership
revenues 20,517 27,704 9,749 7,505 65,475
Reimbursed costs 14,211 15,613 16,453 21,697 67,974
------------------------------------------------------
63,097 74,539 52,204 58,498 248,338
------------------------------------------------------
Expenses:
General and
administrative
expenses (12,720) (13,150) (15,625) (16,653) (58,148)
Hotel ownership
cost of sales
and expenses (24,087) (25,685) (8,417) (7,897) (66,086)
Reimbursed costs (14,211) (15,613) (16,453) (21,697) (67,974)
------------------------------------------------------
(51,018) (54,448) (40,495) (46,247) (192,208)
------------------------------------------------------
Operating earnings
before other items 12,079 20,091 11,709 12,251 56,130
Depreciation and
amortization (3,029) (2,908) (2,575) (2,675) (11,187)
Other expenses, net (2,710) (8,645) (21,064) (56,789) (89,208)
Interest income 3,876 3,740 3,974 5,156 16,746
Interest expense (3,105) (2,530) (2,766) (3,144) (11,545)
------------------------------------------------------
Earnings (loss)
before income
taxes 7,111 9,748 (10,722) (45,201) (39,064)
------------------------------------------------------
Income tax recovery
(expense):
Current (1,924) (1,390) 2,925 (1,523) (1,912)
Future 15 7,428 (3,644) 8,954 12,753
------------------------------------------------------
(1,909) 6,038 (719) 7,431 10,841
------------------------------------------------------
Net earnings
(loss) $ 5,202 $ 15,786 $ (11,441) $ (37,770) $ (28,223)
------------------------------------------------------
------------------------------------------------------
Basic earnings
(loss) per
share $ 0.14 $ 0.43 $ (0.31) $ (1.03) $ (0.77)
------------------------------------------------------
------------------------------------------------------
Diluted earnings
(loss) per
share $ 0.14 $ 0.42 $ (0.31) $ (1.03) $ (0.77)
------------------------------------------------------
------------------------------------------------------
--------------------------------
(1) These consolidated financial statement schedules should be read in
conjunction with our consolidated financial statements for that
period.
(2) Our strategy has been to focus on hotel management rather than hotel
ownership. Over the past few years, we have reduced our ownership
interests such that Four Seasons Hotel Vancouver is our only
remaining hotel whose results we currently consolidate. As a result,
commencing January 1, 2006, we have changed the presentation of our
consolidated statements of operations and no longer segregate our
Ownership Operations segment from our Management Operations segment.
Corporate expenses that were previously included in our Ownership
Operations segment have been reclassified and included in general and
administrative expenses. The presentation of our 2005 consolidated
statements of operations have been changed to conform with the
financial statement presentation adopted for 2006.
SCHEDULE B(1)
-------------
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of 2004
US dollars except ------------------------------------------------------
per share First Second Third Fourth
amounts) Quarter(2) Quarter(2) Quarter(2) Quarter(2) Total(2)
-------------------------------------------------------------------------
Revenues:
Hotel management
fees $ 20,140 $ 22,939 $ 18,278 $ 22,026 $ 83,383
Other fees 1,967 4,084 6,438 2,093 14,582
Foreign exchange
forward
contracts 2,720 2,798 2,625 3,058 11,201
Hotel ownership
revenues 20,332 28,399 22,383 26,615 97,729
Reimbursed costs 11,962 13,143 13,535 15,732 54,372
------------------------------------------------------
57,121 71,363 63,259 69,524 261,267
------------------------------------------------------
Expenses:
General and
administrative
expenses (11,184) (11,416) (10,981) (14,018) (47,599)
Hotel ownership
cost of sales
and expenses (24,628) (26,299) (23,859) (25,116) (99,902)
Reimbursed costs (11,962) (13,143) (13,535) (15,732) (54,372)
------------------------------------------------------
(47,774) (50,858) (48,375) (54,866) (201,873)
------------------------------------------------------
Operating earnings
before other
items 9,347 20,505 14,884 14,658 59,394
Depreciation and
amortization (2,751) (2,664) (3,102) (3,262) (11,779)
Other income
(expenses), net 3,279 (2,216) (18,089) 5,120 (11,906)
Interest income 3,106 2,836 3,706 3,375 13,023
Interest expense (1,873) (1,995) (3,455) (3,138) (10,461)
------------------------------------------------------
Earnings (loss)
before income
taxes 11,108 16,466 (6,056) 16,753 38,271
------------------------------------------------------
Income tax recovery
(expense):
Current (2,116) (3,214) 364 (4,099) (9,065)
Future (288) (493) (2,830) 103 (3,508)
------------------------------------------------------
(2,404) (3,707) (2,466) (3,996) (12,573)
------------------------------------------------------
Net earnings
(loss) $ 8,704 $ 12,759 $ (8,522) $ 12,757 $ 25,698
------------------------------------------------------
------------------------------------------------------
Basic earnings
(loss) per
share $ 0.25 $ 0.36 $ (0.24) $ 0.35 $ 0.72
------------------------------------------------------
------------------------------------------------------
Diluted earnings
(loss) per
share $ 0.24 $ 0.34 $ (0.24) $ 0.34 $ 0.69
------------------------------------------------------
------------------------------------------------------
--------------------------------
(1) These consolidated financial statement schedules should be read in
conjunction with our consolidated financial statements for that
period.
(2) Our strategy has been to focus on hotel management rather than hotel
ownership. Over the past few years, we have reduced our ownership
interests such that Four Seasons Hotel Vancouver is our only
remaining hotel whose results we currently consolidate. As a result,
commencing January 1, 2006, we have changed the presentation of our
consolidated statements of operations and no longer segregate our
Ownership Operations segment from our Management Operations segment.
Corporate expenses that were previously included in our Ownership
Operations segment have been reclassified and included in general and
administrative expenses. The presentation of our 2004 consolidated
statements of operations have been changed to conform with the
financial statement presentation adopted for 2006.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
(Unaudited) March 31,
(In thousands of US dollars except per share amounts) 2006 2005
-------------------------------------------------------------------------
Revenues:
Hotel management fees $ 30,384 $ 24,689
Other fees 5,326 3,680
Hotel ownership revenues 5,479 20,517
Reimbursed costs 16,435 14,211
-----------------------
57,624 63,097
-----------------------
Expenses:
General and administrative expenses (14,240) (12,720)
Hotel ownership cost of sales and expenses (6,493) (24,087)
Reimbursed costs (16,435) (14,211)
-----------------------
(37,168) (51,018)
-----------------------
Operating earnings before other items 20,456 12,079
Depreciation and amortization (2,643) (3,029)
Other expenses, net (note 4) (833) (2,710)
Interest income 4,461 3,876
Interest expense (3,710) (3,105)
-----------------------
Earnings before income taxes 17,731 7,111
-----------------------
Income tax recovery (expense):
Current (3,129) (1,924)
Future (1,219) 15
-----------------------
(4,348) (1,909)
-----------------------
Net earnings $ 13,383 $ 5,202
-----------------------
-----------------------
Basic earnings per share (note 3(a)) $ 0.36 $ 0.14
-----------------------
-----------------------
Diluted earnings per share (note 3(a)) $ 0.36 $ 0.14
-----------------------
-----------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
March 31, December 31,
(In thousands of US dollars) 2006 2005
-------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 245,254 $ 242,178
Receivables 70,048 69,690
Inventory 7,602 7,326
Prepaid expenses 5,440 2,950
-----------------------
328,344 322,144
Long-term receivables 177,032 175,374
Investments in hotel partnerships and
corporations (note 2) 83,990 99,928
Fixed assets 69,354 64,850
Investment in management contracts (note 2) 181,358 164,932
Investment in trademarks and trade names 4,225 4,210
Future income tax assets 13,220 14,439
Other assets 34,890 34,324
-----------------------
$ 892,413 $ 880,201
-----------------------
-----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 47,097 $ 54,797
Long-term obligations due within one year 3,324 4,853
-----------------------
50,421 59,650
Long-term obligations 275,308 273,825
Shareholders' equity (note 3):
Capital stock 254,884 250,430
Convertible notes 36,920 36,920
Contributed surplus 11,339 10,861
Retained earnings 174,124 160,741
Equity adjustment from foreign currency
translation 89,417 87,774
-----------------------
566,684 546,726
-----------------------
$ 892,413 $ 880,201
-----------------------
-----------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
(Unaudited) March 31,
(In thousands of US dollars) 2006 2005
-------------------------------------------------------------------------
Operating activities:
Net earnings $ 13,383 $ 5,202
Items not affecting cash:
Stock-based compensation expense 522 494
Depreciation and amortization 2,643 3,029
Other expenses, net 833 2,710
Future income tax expense (recovery) 1,219 (15)
Other 541 254
Changes in non-cash working capital (13,527) (16,310)
-----------------------
Cash provided by (used in) operating activities 5,614 (4,636)
-----------------------
Investing activities:
Advances of long-term receivables (2,261) (20,813)
Receipt of long-term receivables 7,910 348
Investments in hotel partnerships and corporations 1,797 (7,180)
Disposal of hotel partnerships and corporations - 5,346
Purchase of fixed assets (5,606) (3,607)
Investments in trademarks, trade names and
management contracts (3,952) (131)
Other assets (1,481) (51)
-----------------------
Cash used in investing activities (3,593) (26,088)
-----------------------
Financing activities:
Long-term obligations including current portion (1,968) 132
Issuance of shares 4,406 5,617
Dividends paid (1,657) (1,558)
-----------------------
Cash provided by financing activities 781 4,191
-----------------------
Increase (decrease) in cash and cash equivalents 2,802 (26,533)
Increase (decrease) in cash and cash equivalents
due to unrealized foreign exchange gain (loss) 274 (1,680)
Cash and cash equivalents, beginning of period 242,178 226,377
-----------------------
Cash and cash equivalents, end of period $ 245,254 $ 198,164
-----------------------
-----------------------
Supplementary information:
Interest received $ 4,659 $ 4,667
Interest paid (2,596) (3,000)
Income taxes paid (1,774) (3,106)
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three months ended
(Unaudited) March 31,
(In thousands of US dollars) 2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 160,741 $ 192,129
Net earnings 13,383 5,202
-----------------------
Retained earnings, end of period $ 174,124 $ 197,331
-----------------------
-----------------------
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.
and its consolidated subsidiaries. These interim consolidated financial
statements do not include all disclosures required by Canadian generally
accepted accounting principles ("GAAP") for annual financial statements
and should be read in conjunction with our most recently prepared annual
consolidated financial statements for the year ended December 31, 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 an impact on our
consolidated financial statements for the three months ended
March 31, 2006.
(b) Financial instruments:
In January 2005, the CICA issued Section 1530 "Comprehensive
Income", Section 3855 "Financial Instruments - Recognition and
Measurement", and Section 3865 "Hedges". These standards are
effective for fiscal years beginning on or after October 1, 2006.
The impact of adoption of these standards is not yet
determinable, as it will be dependent on our unsettled
positions, hedging strategies, and market volatility at the time
of transition.
(c) Comparative figures:
Certain 2005 comparative figures have been reclassified to
conform with the financial statement presentation adopted for
2006.
2. Hotel investment transaction:
During the three months ended March 31, 2006, we contributed our
equity interest in a property under our management in exchange for a
management contract enhancement of approximately the same fair value.
No gain or loss was recorded in connection with this transaction.
3. Shareholders' equity:
As at March 31, 2006, we have 3,725,698 outstanding Variable Multiple
Voting Shares ("VMVS"), 33,029,478 outstanding Limited Voting Shares
("LVS"), and 4,394,243 outstanding stock options (weighted average
exercise price of C$59.65 ($51.11)).
(a) Earnings per share:
A reconciliation of the net earnings and weighted average number
of VMVS and LVS used to calculate basic and diluted earnings per
share is as follows:
Three months ended
March 31,
2006 2005
-------------------------------------------------------------------------
Net Net
earnings Shares earnings Shares
-------------------------------------------------------------------------
Basic earnings per share
amounts $ 13,383 36,685,329 $ 5,202 36,608,763
Effect of assumed dilutive
conversions:
Stock option plan - 583,483 - 1,535,543
-------------------------------------------------------------------------
Diluted earnings per share
amounts $ 13,383 37,268,812 $ 5,202 38,144,306
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The diluted earnings per share calculation excluded the effect of
the assumed conversions of 1,535,776 stock options to LVS, under
our stock option plan, during the three months ended March 31,
2006 (2005 - 9,000 stock options), as the inclusion of these
options would have resulted in an anti-dilutive effect. There
was no dilution in 2006 and 2005 relating to our convertible
senior notes.
(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.
There were 41,650 stock options granted in the three months ended
March 31, 2006 at a weighted average exercise price of C$62.61
($53.65). The fair value of stock options granted in the three
months ended March 31, 2006 was estimated using the Black-Scholes
option 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 three months ended March 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 March 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 ended March 31,
2006 and 2005, if we had applied the fair value-based method to
options granted during 2002, our net earnings and basic and
diluted earnings per share would have been adjusted to the pro
forma amounts indicated below:
Three months ended
March 31,
2006 2005
-----------------------------------------------------------------
Stock-based compensation expense $ (522) $ (494)
----------------------
----------------------
Net earnings, as reported $ 13,383 $ 5,202
Increase in stock-based compensation
expense that would have been recorded
if all outstanding stock options granted
during 2002 had been expensed (646) (691)
----------------------
Pro forma net earnings $ 12,737 $ 4,511
----------------------
Earnings per share:
Basic, as reported $ 0.36 $ 0.14
Basic, pro forma 0.35 0.12
Diluted, as reported 0.36 0.14
Diluted, pro forma 0.34 0.12
----------------------
4. Other expenses, net:
Three months ended
March 31,
2006 2005
---------------------------------------------------------------------
Foreign exchange loss $ (528) $ (393)
Asset provisions and write downs (305) (1,931)
Loss on disposition of assets - (386)
----------------------
$ (833) $ (2,710)
----------------------
----------------------
The net foreign exchange loss in 2006 and 2005 related primarily to
the foreign currency translation gains and losses on unhedged net
asset and liability positions, primarily in US dollars, euros, pounds
sterling and Australian dollars, and local currency foreign exchange
gains and losses on net monetary assets incurred by our designated
foreign self-sustaining subsidiaries.
As at March 31, 2006, we have foreign exchange forward contracts in
place to sell forward $24,579 of US dollars to receive Canadian
dollars at a weighted average forward exchange rate of 1.156 maturing
over the period to June 2006. These 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 a
$67 foreign exchange loss being recorded in the three months ended
March 31, 2006.
Subsequent to March 31, 2006, we have sold forward an additional
$28,784 of US dollars to receive Canadian dollars at a weighted
average forward exchange rate of 1.137 maturing over the period to
October 2007.
5. Pension benefit expense:
The pension benefit expense for the three months ended March 31, 2006
was $944 (2005 - $621).
6. Segmented information:
Our strategy has been to focus on hotel management rather than hotel
ownership. Over the past few years, we have reduced our ownership
interests such that Four Seasons Hotel Vancouver is our only
remaining hotel whose results we currently consolidate. As a result,
commencing January 1, 2006, corporate expenses have been included in
general and administrative expenses in the consolidated statements of
operations for the three months ended March 31, 2006. Corporate
expenses for the three months ended March 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
March 31, 2006
-----------------------------------
Management Ownership
Operations Operations Total
---------------------------------------------------------------------
Revenues:
Hotel management fees $ 30,384 $ - $ 30,384
Other fees 5,326 - 5,326
-----------------------------------
35,710 - 35,710
Hotel ownership revenues - 5,479 5,479
Reimbursed costs 16,435 - 16,435
-----------------------------------
52,145 5,479 57,624
-----------------------------------
Expenses:
General and administrative
expenses (14,240) - (14,240)
Hotel ownership cost of
sales and expenses - (6,493) (6,493)
Reimbursed costs (16,435) - (16,435)
-----------------------------------
(30,675) (6,493) (37,168)
-----------------------------------
Operating earnings (loss)
before other items $ 21,470 $ (1,014) $ 20,456
-----------------------------------
-----------------------------------
Three Months Ended
March 31, 2005
-----------------------------------
Management Ownership
Operations Operations Total
---------------------------------------------------------------------
Revenues:
Hotel management fees $ 24,689 $ - $ 24,689
Other fees 3,680 - 3,680
-----------------------------------
28,369 - 28,369
Hotel ownership revenues - 20,517 20,517
Reimbursed costs 14,211 - 14,211
-----------------------------------
42,580 20,517 63,097
-----------------------------------
Expenses:
General and administrative
expenses (12,720) - (12,720)
Hotel ownership cost of
sales and expenses - (24,087) (24,087)
Reimbursed costs (14,211) - (14,211)
-----------------------------------
(26,931) (24,087) (51,018)
-----------------------------------
Operating earnings (loss)
before other items $ 15,649 $ (3,570) $ 12,079
-----------------------------------
-----------------------------------
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1)
Three months ended
March 31,
(Unaudited) 2006 2005 Variance
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Worldwide
No. of Properties 56 56 -
No. of Rooms 14,290 14,290 -
Occupancy(2) 69.2% 66.5% 2.7pts.
ADR(3) $368.99 $344.12 7.2%
RevPAR(4) $255.48 $228.70 11.7%
Gross operating margin(5) 32.4% 29.9% 2.5pts.
United States
No. of Properties 20 20 -
No. of Rooms 6,195 6,195 -
Occupancy(2) 74.6% 71.7% 2.9pts.
ADR(3) $403.65 $372.81 8.3%
RevPAR(4) $300.97 $267.25 12.6%
Gross operating margin(5) 30.2% 28.1% 2.1pts.
Other Americas/Caribbean
No. of Properties 10 10 -
No. of Rooms 2,165 2,165 -
Occupancy(2) 66.9% 63.3% 3.6pts.
ADR(3) $453.44 $424.08 6.9%
RevPAR(4) $303.41 $268.35 13.1%
Gross operating margin(5) 36.9% 35.2% 1.7pts.
Europe
No. of Properties 10 10 -
No. of Rooms 1,720 1,720 -
Occupancy(2) 58.7% 51.9% 6.8pts.
ADR(3) $522.22 $510.95 2.2%
RevPAR(4) $306.52 $265.23 15.6%
Gross operating margin(5) 25.0% 21.3% 3.7 pts.
Middle East
No. of Properties 5 5 -
No. of Rooms 1,215 1,215 -
Occupancy(2) 70.5% 70.8% (0.3)pts.
ADR(3) $258.34 $224.81 14.9%
RevPAR(4) $182.13 $159.25 14.4%
Gross operating margin(5) 52.1% 49.5% 2.6pts.
Asia/Pacific
No. of Properties 11 11 -
No. of Rooms 2,995 2,995 -
Occupancy(2) 65.0% 64.7% 0.3pts.
ADR(3) $202.83 $197.70 2.6%
RevPAR(4) $131.90 $128.00 3.0%
Gross operating margin(5) 32.6% 30.2% 2.4pts.
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1 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.
2 Occupancy percentage is defined as the total number of rooms occupied
divided by the total number of rooms available.
3 ADR is defined as average daily room rate per room occupied,
calculated as the weighted average for each region. In 2004 and 2005,
ADR was calculated as straight average for each region.
4 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.
5 Gross operating margin represents gross operating profit as a
percentage of gross operating revenue.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - ALL MANAGED HOTELS
As at
March 31,
(Unaudited) 2006 2005 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties 70 65 5
No. of Rooms 17,515 16,530 985
United States
No. of Properties 24 24 -
No. of Rooms 7,045 7,105 (60)
Other Americas/Caribbean
No. of Properties 10 10 -
No. of Rooms 2,165 2,165 -
Europe
No. of Properties 12 11 1
No. of Rooms 1,960 1,855 105
Middle East
No. of Properties 7 5 2
No. of Rooms 1,740 1,215 525
Asia/Pacific
No. of Properties 17 15 2
No. of Rooms 4,605 4,190 415
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FOUR SEASONS HOTELS INC.
REVENUES UNDER MANAGEMENT - ALL MANAGED HOTELS
Three months ended
(Unaudited) March 31,
(In thousands of US dollars) 2006 2005
-------------------------------------------------------------------------
Revenues under management(1) $ 692,342 $ 601,563
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1 Revenues under management consist of rooms, food and beverage,
telephone and other revenues of all the hotels and resorts which we
manage. Approximately 59% 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 2006/2007 openings
----------------------------
Four Seasons Hotel Alexandria, Egypt(x) 125
Four Seasons Hotel Beirut, Lebanon 235
Four Seasons Hotel Florence, Italy 120
Four Seasons Hotel Istanbul at the Bosphorus, Turkey 170
Four Seasons Resort Lana'i at Koele, Hawaii, USA(3) 100
Four Seasons Resort Maldives at Landaa Giraavaru, Maldives 100
Four Seasons Hotel Mumbai, India(x) 235
Four Seasons Hotel Westlake Village, California, USA 270
Beyond 2007
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Four Seasons Hotel Bahrain, Bahrain 250
Four Seasons Hotel Baltimore, Maryland, USA(x) 200
Four Seasons Resort Barbados, Barbados(x) 120
Four Seasons Hotel Beijing, People's Republic of China 325
Four Seasons Resort Bora Bora, French Polynesia 105
Four Seasons Hotel Dubai, United Arab Emirates(x) 375
Four Seasons Hotel Kuala Lumpur, Malaysia(x) 140
Four Seasons Hotel Macau, Special Administrative Region of
the People's Republic of China(x) 400
Four Seasons Hotel Marrakech, Morocco(x) 140
Four Seasons Resort Mauritius, Republic of Mauritius(x) 120
Four Seasons Hotel Moscow, Russia(x) 195
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 Seattle, Washington, USA(x) 150
Four Seasons Resort Seychelles, Seychelles(x) 55
Four Seasons Hotel Shanghai at Pudong, People's Republic of China(x) 230
Four Seasons Hotel Taipei, Taiwan(x) 275
Four Seasons Hotel Toronto, Ontario, Canada(x) 265
Four Seasons Resort Vail, Colorado, USA(x) 120
(x) Expected to include a residential component.
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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 2005 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.
3 The Lodge at Koele is currently managed by Four Seasons and is
expected to be rebranded as Four Seasons Resort Lana'i at Koele in
2006 when the necessary renovations are completed.
DATASOURCE: Four Seasons Hotels and Resorts
CONTACT: John Davison, Chief Financial Officer, (416) 441-6714; Barbara
Henderson, Vice President, Corporate Finance, (416) 441-4329